World Economy

Canada Growth Robust, Housing Sector Cooling

Canada Growth Robust, Housing Sector CoolingCanada Growth Robust, Housing Sector Cooling

On July 13, the executive board of the International Monetary Fund concluded the Article IV consultation with Canada. The 2018 Article IV consultation centered on policies to secure stronger, inclusive and self-sustaining growth.

The economy has continued to perform well. Growth has been robust and the housing market is finally showing signs of cooling down in response to several rounds of macro-prudential measures and monetary tightening, reported.

However, economic anxiety is high due to trade tensions, uncertainty about the outcome of NAFTA negotiations, and the impact of the US Tax Cuts and Jobs Act on Canada’s medium-term competitiveness.

The positive momentum in the economy is expected to continue in the near term, with real GDP moderating to a more sustainable growth rate of about 2% in 2018 and 2019.

A fast-growing US economy will provide a near term boost to Canadian exports and contribute to a narrowing of the current account deficit.

However, over the medium-term, weak external competitiveness, sluggish labor productivity growth, and population aging are expected to limit potential growth to about 1.75%, significantly lower than its historical average.

The outlook is subject to significant risks, both domestic and external. A key domestic risk is a sharp correction in the housing market. In this context, risks to financial stability and growth could emerge, if the house price correction is accompanied by a rise in unemployment and sharp contraction in private consumption.

External risks are now more acute than in the past and stem from sources that can be mutually reinforcing—including the impact of US tax reform on Canada’s medium-term competitiveness, uncertainty related to NAFTA negotiations, and the prospect of further escalation in trade tensions. Policy choices will be crucial in shaping the outlook and mitigating risks.

Directors commended the impressive performance of the Canadian economy in 2017. They noted that the growth momentum is expected to continue in the near term, but that the outlook is subject to significant downside risks, including from uncertainties related to trade and the impact of recent US tax changes. Directors urged the authorities to rebuild policy buffers and forge ahead with reforms to boost competitiveness and productivity.

Add new comment

Read our comment policy before posting your viewpoints